J.C. Penney Surges Despite Equity Concerns (Update 1)

Written by: Laurie Kulikowski09/26/13 - 11:04 AM EDT

Tickers in this article:
JCP

This story has been updated to reflected J.C. Penney's share price fluctuations.

NEW YORK ( TheStreet) - J.C. Penney shares were spiking Thursday despite reports that the troubled retailer was looking for an equity infusion, possibly as high as $1 billion, as the company finally spoke out.

After a morning of share price fluctuation, J.C. Penney's stock was surging 7.5% to $10.88 at last check, along with broader markets gains.

J.C. Penney issued a statement shortly before the market opened meant to assuage investors' fears, saying that it is "pleased with its progress thus far in the company's turnaround efforts and the traction its initiatives are starting to achieve," by seeing "greater predictability in its performance across many areas," it said.

The Plano, Texas-based retailer also said it is "encouraged" by improvements in "purchase conversion both in store and on jcp.com, primarily due to being back in stock in key items and sizes the customer expects to find at J.C. Penney. Overall sales on jcp.com continue to trend double digits ahead of last year."

The company still anticipates "positive comparable store sales trends coming out of the third quarter and throughout the fourth quarter of 2013."

However, there was no mention of liquidity or capital raising activities in the statement, despite a Reuters report saying the troubled department store is to raise anywhere from $750 million to $1 billion in new equity, which cited three people close to the matter.

J.C. Penney's stock plunged to a 13-year low on Wednesday after Goldman Sachs credit analysts issued a report initiating an "underperform" rating on the company's debt. The analysts said they had concerns about the company's liquidity.

"In our view a combination or weak fundamentals, inventory rebuilding and an underperforming home department will likely challenge J.C. Penney's liquidity levels in [the third quarter]," the Goldman note said. "In order to safeguard against a potentially poor [fourth quarter] holiday season, it is likely that management will look to build a bigger liquidity buffer, as has been suggested by recent press reports. Although we believe this would be a prudent measure for the company, given our expectation for new capital to come in the form of debt (rather than equity), we believe this will be a negative catalyst for creditors."

J.C. Penney is struggling to jumpstart a turnaround under the direction of CEO Mike Ullman.

Separately, Citigroup equity analysts on Thursday cut their 12-month price target on J.C. Penney by $4 to $7. Citi analysts are concerned the company's relationships with vendors are deteriorating as the turnaround takes longer than expected.

The analysts also said it would be "prudent" to raise capital to "cushion against a potentially challenging holiday season," even though it does have enough cash currently. Citi has a "sell" rating on the company.